Michigan Self-Storage Portfolio, DST

Michigan

ASSET CLASS:  Self-Storage Portfolio
OFFERING SIZE:  $49,714,439
MINIMUM INVESTMENT:  $100,000
LEVERAGE:  57.43%
# OF PROPERTIES:  12
# OF STORAGE UNITS:  5,725
HOLD PERIOD:  7-10 Years
TARGETED Yr.-1 RETURN:  5.00%

The Trust owns 12 self-storage properties (each, a Property and collectively, the Properties) in the state of Michigan. In total, the Properties comprise 5,725 storage units encompassing more than 747,646 square feet. Each of the Properties will be operated as a self-storage facility under the CubeSmart® (CubeSmart) name and brand.

All Properties have drive-up capability and certain Properties offer climate-controlled units. CubeSmart offers both climate and non-climate-controlled storage units. Approximately 50 percent of its square footage is non-climate-controlled storage, with the remaining units being climate-controlled with a temperature variance of 55 to 80 degrees. Most CubeSmart properties offer moving carts, roll-up doors and drive-up access storage units. Security features include 24-hour video recording, gated access and well-lit areas.

Detroit-Warren-Ann Arbor Combined Statistical Area (Detroit CSA)

Seven of the 12 Properties, the Ann Arbor-Jackson Property, Ann Arbor-State Property, Chesterfield Property, Lake Orion Property, Novi Property, Westland Property and Ypsilanti Property, are part of this Detroit CSA, which is located in Southeastern Michigan. The Detroit CSA has experienced slight growth in both population and number of households over the last eight years and is expected to continue to grow annually over the next five years. In general, the Detroit CSA unemployment rate has been on the decline since 2010. Manufacturing leads the local economy with 19 percent of the total employment, however, strong areas of growth are seen in financial, healthcare and technology- related industries. The University of Michigan is located in the Detroit CSA, and is the number four top employer in the Detroit area. Ford Motor Company, General Motors Corp. and FCA US LLC, also in the auto industry, round out the top three employers. The automobile industry continues to be a driving force in southeast Michigan, with automobile sales just under 17 million vehicles sold in 2019.

Grand Rapids-Muskegon-Holland Combined Statistical Area (Grand Rapids CSA)

The Grand Rapids and Wyoming Property are located in the Grand Rapids CSA. Grand Rapids is located on the Grand River about 40 miles east of Lake Michigan. The population of the Grand Rapids area exceeds one million residents and is expected to continue to increase by 0.9 percent by 2023. There are more than 540,000 employees in the Grand Rapids area with the top three industries being manufacturing, healthcare/social assistance and retail trade. The Grand Rapids area economy is heavily dependent on manufacturing, particularly automobile and furniture industries.

Kalamazoo-Portage MSA

The Kalamazoo Property is located in the Kalamazoo-Portage MSA, whose population is at 340,000 and population is projected to increase at 0.6 percent annually through 2024. The MSA includes a total of 173,096 employees. The top three industries in the MSA are manufacturing, healthcare/social assistance and retail trade.

Lansing/East Lansing MSA

The Lansing Property and the Okemos Property are located in the Lansing/East Lansing MSA, which has a population of 484,767 and is expected to continue to grow at 0.5 percent annually through 2024, adding approximately 12,000 residents. The MSA includes more than 230,000 employees. The top three industries within the area are educational services, healthcare/social assistance and manufacturing.

Within their 2019 Self-Storage U.S. Investment Forecast, Marcus and Millichap forecasted that the self-storage industry will continue to benefit from long-term demographic changes including the aging of the millennial generation who prefer rented living accommodations and now make up approximately one-third of all non-commercial renters. Additionally, the Marcus and Millichap report notes that subdued construction earlier in the cycle has resulted in pent-up demand for new storage facilities in many metro areas with the greatest potential growth in secondary and tertiary markets.

The forecast nationally is for vacancy rates to rise for the next year before experiencing a slow but steady decline through 2023. Elevated consumption, related to increasing multifamily lifestyles where residents do not have room to accommodate all of their belongings, is expected to result in stable demand; however, new development will likely outpace demand for the remainder of 2019 and 2020. The forecast from REIS calls for a vacancy rate of 14.3% by year-end 2019 with a stabilization thereafter (with the vacancy rate dropping back under 13% throughout the five- year forecast horizon).

According to REIS.com, as of the third quarter of 2019 (the most recent report as of the date of this opinion) the national vacancy rate was 13%, which was down 60 basis points over the first-quarter 2019 vacancy rate, however, up 110 basis points over the level found one year prior, and up 380 basis points from the cycle-low vacancy rate of 9.2%, found during the second quarter of 2016.

The forecast nationally is for vacancy rates to rise for the next year before experiencing a slow but steady decline through 2023. Elevated consumption, related to increasing multifamily lifestyles where residents do not have room to accommodate all of their belongings, is expected to result in stable demand; however, new development will likely outpace demand for the remainder of 2019 and 2020. The forecast from REIS calls for a vacancy rate of 14.3% by year-end 2019 with a stabilization thereafter (with the vacancy rate dropping back under 13% throughout the five- year forecast horizon).

As of January 15, 2020, the average physical occupancy rate for the Projects (including the square footage of the storage units but not the rentable parking spaces, which are not included in the total rentable square footage), based on the rentable square footage of the Projects, was approximately 86%.

Each of the Properties is managed by CubeSmart Asset Management, LLC, an established operator of Self-Storage properties and a subsidiary of CubeSmart, L.P., (CubeSmart), a Maryland real estate investment trust, which is a self- administered and self-managed real estate company focused on the ownership, operation, acquisition and development of self-storage facilities in the United States. CubeSmart self-storage facilities are designed to offer affordable, easily accessible for residential and commercial customers. CubeSmart’s current portfolio includes 1,086 self-storage properties nationally. CubeSmart employs more than 2,800 team members and offers service to approximately 525,000 customers. CubeSmart trades on the New York Stock Exchange under the ticker CUBE.

Targeted Yr.-1 Cash-on-Cash: 5.00%
Targeted Cash Range: 4.79% - 6.41%
Targeted Cash Average: 5.33%
Targeted Cash Range w/ Principal Paydown: 5.00% - 9.41%
Targeted Cash Average w/ Principal Paydown: 7.33%
Projected IRR (based on sale at purchase cap rate): 8.20%

All-In Price: $116,014,431
Purchase Price: $102,000,000
Appraised Value: $103,265,000
Loan Amount: $66,300,000
Equity Raise: $49,714,431
Trust Reserves: $5,669,875
Reserves to All-In Price: 4.89%
Reserves to Equity: 11.40%
Net Load: $8,344,556
Net Load to Equity: 16.78%
Net Load to All-In Ratio: 7.19%
Appraised Net Load: $5,326,677
Appraised Net Load to Equity: 14.24%
Appraised Net Load to All-In Price: 6.10%

Net Operating Income: $5,820,910
Purchase Cap Rate: 5.71%
All-In Cap Rate: 5.17%
Breakeven Exit Cap: 7.23%
Breakeven Exit Cap Rate Spread: 152 bps
Appraised Cap: 5.64%
Appraised Cap Rate Spread: 159 bps

Loan Amount: $56,000,000
Term: 10 Years Fixed
Interest Only Period: 3 Years
Amortization Period: 30 Years
Interest Rate: 3.81%
Lender: KeyBank under the Fannie Mae DUS Loan Program
LTV: 57.15%
Non-Recourse: Yes to Investor

DST Due Diligence & Advisory Services

(415) 336-9225

DISCLAIMER
The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by the issuing company, or any affiliate, or partner there of the issuer. All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM. With respect to the “targeted” goals and performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment. These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. Past performance and statements regarding current occupancy and earnings are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by the issuer, or one of its partner/issuers. The issuer does not warrant the accuracy or completeness of the information contained herein. Some offerings are subject to a “cooling off” period and are not available to all investors. 
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Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC, and the issuer are not affiliated.